Technology

Allergan: Smoothing the Wrinkles

Pharmaceuticals maker Allergan (AGN) on Feb. 2 announced yearend results that would probably make some of its largest rivals jealous. Sales in 2005 jumped 13.5%, to $2.3 billion, and earnings before taxes rose 12.5%, to $598.4 million. Still, Allergan's stock has dropped about 6% since then, to $107.17, largely on concerns that sales of its most famous product, the wrinkle reducer Botox Cosmetic, may be slowing.

Before Botox, Allergan was best known for its eye-care products, ranging from contact lens solution to artificial tears. But that was a sleepy business with limited potential for growth. After Allergan started developing Botox -- a safe form of the botulinum toxin -- to treat rare muscular disorders such as uncontrollable eye-blinking, physicians started reporting its wrinkle-reducing powers back to the company. Allergan conducted clinical trials, and the Food & Drug Administration approved the product to smooth wrinkles in 2002, setting the company on a blazing growth spurt.

Allergan CEO David E.I. Pyott sat down with BusinessWeek's Arlene Weintraub to discuss Botox, as well as other areas that are driving Allergan's growth. Edited excerpts of their conversation follow:

Are you concerned that Botox' sales prospects may have peaked?

No. There were six fewer selling days in the last quarter than there were in the same period the year before. If you were to add those back, you'd see the company growing 23%. And we're ramping up our research spending on Botox, as we prepare for trials in headache patients. Those trials are enrolling now.

Do you have any sense of how Botox is being received by patients who suffer from headaches, as well as by their insurance companies?

The drug has been used off-label in headache and pain clinics. Patients say it helps, and it doesn't cause the side effects of other treatments. But it's injected in the forehead (as is the wrinkle-reducing form), so at first managed-care companies reacted by saying, "I'm not going to pay to treat people's wrinkles." Then they found out that the cost of the treatment only amounts to about $1.20 a day, and their attitude went from "no thanks" to tremendous enthusiasm.

Allergan is also a well-known brand in the eye-care market. Where have you seen the most progress lately?

We've had enormous success with Restasis for dry eye. Previously there was no cure. People used artificial tears, but that just lubricated the problem. And they'd use them 6, 8, 10 times a day. Restasis goes to the root cause. The average co-pay on Restasis is $27 a month. For most people, who are spending a lot on artificial tears, that's not a problem. We created this market and sold $190 million worth of product.

You launched Restasis with an aggressive TV campaign, featuring actress Janine Turner from Northern Exposure. Direct-to-consumer advertising by drug companies has been a topic of controversy, with some critics saying it drives too much demand for prescription drugs. Why did you feel this was the right approach to marketing the drug?

Making patients aware was really important. There was a small nucleus of ophthalmologists who jumped on the drug very fast and early. But most general ophthalmologists remained skeptics. They associated dry eye with [minor problems such as] earache.

Patients were saying, "You gave me these artificial tears, but I'm no better, Doc." When they saw the ads they started going in and asking, "Am I a candidate for this?" As for the celebrity endorser, she served a purpose in the beginning. But since July, we've been running ads with a different person who nobody knows. That ad is doing even better than the first one.

In 2004, the FDA rejected your product to treat psoriasis. How did that experience affect the company going forward?

It impelled us to go back to the drawing board and to massively reallocate our resources to our best opportunities, including Botox and Restasis. In the fourth quarter, overall R&D ramped up 22% year-over-year.

You recently acquired Inamed for $3.2 billion in cash and stock, coming in with an offer beyond what another suitor had bid. Why did you feel this was an important addition?

We're trying to grow by addressing medical specialties. Medicinal aesthetics is a business that has grown for us, thanks to the locomotive known as Botox. But we're also the No. 2 company in physician-dispensed creams, though we haven't really done much in that area. We acquired Inamed to get access to its line of dermal fillers [used to smooth wrinkles].

But Inamed also makes breast implants. Why did you want to get into that business?

I had never really contemplated being in breast aesthetics. Once I got over the shock, I did some analysis to make sure there was nothing disturbing there. Fact is, no link has been proven between silicone breast implants and harm to patients. And 90% of the market is still silicone, plus it's growing. Inamed also makes a wonderful device known as a lap band [for weight-loss surgery]. We're all about innovation.

You've also made some smaller acquisitions, including Oculex Pharmaceuticals for $230 million. What opportunity did you see there?

That company developed Posurdex, an exciting drug-delivery system. It's a pellet that's implanted in the back of the eye. The advantage of this is that you only need two treatments per year, whereas with other [retinal] drugs you might need 10 to 12 injections per year. It's also our first foray into macular edema [swelling of the retina]. We plan to put more drugs into this mechanism, as well.

It seems that a lot of your specialties play to the desires of the aging population. Will you continue to explore that niche?

Yes. I joke that what everybody desires is to live forever. They want to look good. That makes them feel good. And people are realizing that if they don't look stressed and tired, it can help them in their professional lives. We want to be the global leader in medical aesthetics.